Source: Zhitong Finance "Since 1950, the S&P 500 index has risen more than 10% 21 times as of the end of May. In about 90% of these cases, the S&P 500 index rose for the rest of the year. There were only two instances of declines for the rest of the year, in 1987 (-13%) and 1986 (-0.1%)." With the rebound of the stock market, the old adage "Sell in May and Go Away" seems to have been a bad advice once again. Last month, the S&P 500 index rose 4.8%, the best May performance since 2009. The NASDAQ 100 index rose nearly 6.2%, and the NASDAQ Composite Index rose 6.9%. Goldman Sachs FICC & Equities Trading Division said: "History doesn't really support this saying. Don't sell, leave the market (go on vacation), and enjoy the good times." The rising trend is still to be continued? If history is any guide, it may indicate that the rise of the stock market is not over yet. Looking ahead to the rest of 2024, Scott Rubner, Managing Director of the Goldman Sachs Global Markets Division and tactical expert, pointed out the following historical background for investors. Rubner stated that the S&P 500 index has risen 10.7% year-to-date, and since 1950, the S&P 500 index has risen more than 10% 21 times as of the end of May. In about 90% of these cases, the S&P 500 index rose for the rest of the year. There were only two instances of declines for the rest of the year, in 1987 (-13%) and 1986 (-0.1%). "Since 1950, the median return of the last 7 months of each year (June 1 to December 31) is 5.4%. In the aforementioned 21 cases, the average performance of the last 7 months increased to 8.1%." Rubner added. Rubner also pointed out that the NASDAQ index has risen for 16 consecutive Julys, with an average return of about 4.64%.
In the past three trading days, the positions of the options market related to overnight financing rates with collateral show that if the Federal Reserve lowers its key rate to a low point of 2.25% in the first quarter of 2025, bets will increase.
This result seems unlikely unless the US economy suddenly enters a recession. This means that the Federal Reserve will cut interest rates by at least 300 basis points at the current level. This type of bet can be used to hedge against another investment.
Considering that market participants expect the Fed to cut interest rates by about 75 basis points during this period, this is a radical stance. Fed officials recently predicted that interest rates will only be cut by 25 basis points by the end of this year, and a total of 125 basis points by the end of 2025.
Investors have been carefully analyzing economic data and speeches by Fed officials to look for clues as to when the Fed will ultimately relax its monetary policy. Now, some investors are also starting to increase their bets in order to hedge against the consequences of the tail risk, such as a rapid and extreme cut in interest rates. Many trades on such contracts are anonymous, making it difficult to determine the companies behind these bets.
In the federal funds market, traders have been buying heavily into August contracts, which will pay off if policymakers cut interest rates at the July 31 policy meeting. Meanwhile, swaps tied to the meeting date only reflect the expectation of a one basis point rate cut at the time.
JPMorgan's data shows that the spot market has also taken a dovish stance. The latest survey of Goldman Sachs clients shows that as of the week of June 24th, net long positions reached their highest level in three months.
Here is an overview of the latest position indicators in the interest rate market:
JPMorgan clients are bullish
In the week before June 24th, JPMorgan's all-client survey showed a one-percentage-point increase in net long positions, the largest since March 25th. Long positions were the highest since June 3rd. This week, direct short positions remain unchanged.
Option premium hovering above neutral.
In the past week, open interest in call options at 111.50 in August has increased significantly, targeting 10-year Treasury yields of around 4.10% due on July 26th. As of Monday's close, open interest was 128,524 contracts, about twice the number of put options at 110.00 in August (65,470 contracts).
Asset management companies extend futures terms.
CFTC data as of June 18th shows that asset management companies have extended their net holding time by about 141,000 10-year US Treasury futures, with a total long-term holding time of about 7.6 million 10-year US Treasury futures equivalent. Hedge funds have taken the opposite view, adding about 186,000 10-year bond futures to their net short positions. They have increased their net short positions in two-year note futures by $5.6 million per risk basis point, bringing their net short positions to a record of over 2 million contracts.
SOFR options.
In the past week, the largest increase in SOFR options was in call options with exercise prices of 96.75 and 97.75 for March 2025, which is related to the bet on the hawkish call option spread, which was bought for 4.75 in the past three trading days. Other active strikes this week include 94.875 and 94.75, followed by a flow of 94.875 - 94.75 put spreads expiring on December 25th.
SOFR option chart.
In the SOFR options as of March 25th, the most active strike is still at the 96.00 level, equivalent to a 4% interest rate. Bulk trading involving strikes includes SOFR March 25th 96.00/95.50/95.00 put options and SOFR September 25th 96.75/96.00/95.25 put options. Recently popular trades also include the SOFR December 24th 96.00/97.00 call option spread, which was traded in May.
Editor / jayden